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Consider the process: Yt = 2 + 0.5yt1 + & with & ~ N (0,0%) = 1+0.4 +0.40% -1 Suppose today is time t,

Consider the process: Yt = 2 + 0.5yt1 + & with & ~ N (0,0%) = 1+0.4 +0.40% -1 Suppose today is time t, and y = 3, = 1, and = 10. Conditional on information up to today, find the expected value of Et+2, i.e., Vart [Et+2]. 5.32 O 2 5.4 10

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